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Arizona enacts tax-related legislation

Addresses sales tax, income tax and tax credits

TAX ALERT
|
May 24, 2016

Mo Bell-Jacobs, James Barash, Brooke Wilson, Nicholas Walters

On May 19, 2016, Arizona Gov. Doug Ducey signed a number of tax-related bills to close out the legislative session that adjourned on May 7, 2016. The following summaries include a number of pertinent tax changes that impact a wide range of taxpayer activities.

Expands the transaction privilege tax (sales tax) deduction for purchases of natural gas and electricity to qualified manufacturing or smelting businesses. A qualified manufacturing or smelting business is a business that meets any of the following:

A business that manufactures or smelts tangible products of which at least 51 percent of the product will be exported out of state

A business that derives at least 51 percent of its gross income from the sale of manufactured or smelted products manufactured or smelted by the business

A business that uses at least 51 percent of its square footage for manufacturing or smelting activities

A business that employs at least 51 percent of its workforce in this state in manufacturing or smelting and business activities directly related to manufacturing or smelting

A business that uses at least 51 percent of the value of its capitalized assets in the state for manufacturing or smelting activities.

Previously, the deduction was limited to those taxpayers ‘principally engaged’ in manufacturing or smelting, requiring at least 51 percent of the electricity or natural gas be used in those operations. House Bill 2676 is effective Jan. 1, 2017.

Expands exemptions for the sale of liquefied petroleum and gas transportation. House Bill 2025 allows a deduction from the transaction privilege tax for income derived from sales of liquefied petroleum gas, previously limited to electricity or natural gas, to businesses principally engaged in manufacturing or smelting operations. Senate Bill 1505 further expands the deduction for income derived from sales of electricity, natural gas and liquefied petroleum gas to gas transportation services. Gas transportation services means those services of transporting natural gas to natural gas customers or to a natural gas distribution facility if the natural gas was purchased from a supplier other than a utility. House Bill 2025 is effective Sept. 1, 2016, and Senate Bill 1505 is effective Aug. 6, 2016.

Expands and clarifies the transaction privilege tax exemption and requirements for certified computer data centers. Among a number of changes, House Bill 2584 expands eligible investment to include costs of improvements and clarifies that the data center may be owned, leased or paid pursuant to a right to use agreement. House Bill 2584 is retroactively effective to Sept. 13, 2013.

Accelerates the reduction of the tax on certain insurance premiums by five years. The rate in 2016 is reduced from 1.99 to 1.95 percent, and by .05 percent each year thereafter until 2021, where the rate will plateau at 1.70 percent. House Bill 2002 is effective Aug. 6, 2016.

Expands the transaction privilege tax deduction to certain charter aircraft and equipment. Aircraft, navigational and communication instruments, and other accessories and related equipment may be deducted from the gross receipts tax base when sold to a person 1) exempted by federal law from obtaining a federal certificate of public convenience and necessity, 2) certificated or licensed to transport persons in intrastate, interstate or foreign commerce, 3) holding a foreign air carrier permit for air transportation for use as or becoming a part of aircraft to be used to transport people or property in intrastate, interstate or foreign commerce, 4) operating an aircraft to transport persons in any manner for compensation or hire, or 5) that will lease or otherwise transfer control to persons described in one through four as listed above. House Bill 2533 is effective July 1, 2017.

Taxpayers should review this package of tax legislation and consider whether any of the sales tax, income tax and tax credit changes impact their Arizona business activities.

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